JBE has expressed a practice I am not aware of. I appreciate the input - but disagree that it is legal.
I question the practice. I can't help but wonder if it will withstand IRS audit - expressing a "Sales Tax" item on a sales document for REAL property. The home buyer is not buying the "materials" that have gone into the home (and it is the "materials" - lumber, nails, appliances, etc. on which the sales tax was originally levied).
The home buyer is buying the "home" - real property - and Sales Tax is never levied on real property.
Here is a quote from Maryland Tax Code, dealing with Sales Tax:
.19 Real Property Construction, Improvement, Alteration, and Repair.
A. The sale of tangible personal property to a person who will use or resell it in the form of real property is taxable. Therefore, a person who constructs, improves, alters, or repairs real property shall pay the tax on all materials purchased, which will be incorporated into real property in such a manner that the materials will lose their identity as tangible personal property.
B. Taxability is not affected by language in a real property construction contract or subcontract such as "tax included" or "tax exempt", except as provided in §D of this regulation or by any form of payment under the real property construction contract or subcontract, whether lump-sum, cost-plus, time and material, or otherwise.
By the way, "Section D" referred to in this quote, deals with sales to exempt organizations, e.g., government entities.
I suspect that if a builder/developer would express "sales tax" on a home sale document, several consequences would ensue:
- Sales Tax enforcement would take the position that this sales tax, represented as being collected from the home buyer, would need to be forwarded to the State as "Sales Tax Collected" it would need to be reported on the "merchant's" periodic sales tax return. (This would negate the "income factor" for the builder.)
- Sales Tax enforcement would penalize the home builder for assessing sales tax on real property.
- The home builder would not prefer this method, because in divulging the sales tax component of materials purchased, the builder is revealing his "cost" - and this is not something any merchant would willingly do.
- IRS and the states would not recognize this as a valid deduction for Itemizing purposes, because it is an "illegal tax." (You cannot assess sales tax on the materials that have become an intergral part of the home, because those materials have lost their identity as "tangible personal property." AND, it is NOT a tax, it is the home builder's "mark-up" disguised as sales tax. (It is a "tax-avoidance" scheme.)
My advice to this questioner in California - if you want to buy the home and agree that the total price stated (whether any part of the price is expressed as "sales tax" or not) is acceptable to you, go ahead and buy it, but do not try to use this "sales tax" figure as basis for an Itemizing deduction.
I realize I have cited Maryland law, and this questioner is in California - so it is possible that Sales Tax law could be different, as applied to this situation in California. BUT, that does not change Federal law as applied to the 1040.